Hon Chairperson; Deputy Minister of Energy, Ms Barbara Thomson; hon chairperson of the portfolio committee, Mr Njikelana and hon members of the committee; members of Cabinet who are present here today; hon Members of Parliament, members of the diplomatic corps; director- general, deputy directors-general and senior management of the Department of Energy; distinguished guests and energy stakeholders, ladies and gentlemen, the 2009 ANC election manifesto directed that we should work towards an equitable, sustainable and inclusive growth path that brings decent work and sustainable livelihoods, education, health, safe and secure communities, and rural development to all corners of this land.
This remains the vision and the context in which the popular government of the people seeks to bring about fundamental social change, and indeed the context in which this department must fulfil its task. And this task is defined. In the main the Department of Energy responds to the injunction from the ruling party, the ANC, to ensure, and I quote:
... a security of supply of energy resources, and ... an energy mix that includes clean and renewable sources to meet the demands of our fast growing economy without compromising our commitment to sustainable development.
We are fortunate that we are able to present our views on the energy future of this country in the year of the centenary of the glorious people's movement.
Hon members, allow me to reflect on some key areas of our performance in the past financial year. The new multiproduct pipeline was completed and is operational. We improved the turnaround time for petroleum licensing from 90 days to 60 days for new entrants in retail. The regulatory accounting system was completed and margins adjusted accordingly. The Liquid Fuels Charter audit was completed and tabled in Cabinet. We have completed Window 1 of the Renewable Energy Independent Power Producer programme successfully, with 25 successful preferred bidders contributing a total of 1 416 MW.
We launched the energy efficiency campaign during COP 17, together with our social partners in the National Economic Development and Labour Council, Nedlac.
In November 2011 Cabinet approved the establishment of the National Nuclear Energy Executive Co-ordination Committee to oversee the necessary groundwork for the upscaling of our nuclear capacity by 9,6 GW in the period up to 2030. Significant progress was achieved in the development of the solar park initiative. However, there was an unexpected delay in accessing the identified land and we intend to overcome this challenge during this financial year. Despite initial teething problems, we have installed over 250 000 solar water heater systems. The 1 million target by 2014 is still in sight.
Since 1994, 5,4 million electricity connections have been made.
In the international arena, we hosted the African Energy Ministers Conference in September 2011, culminating in the signing of the Johannesburg Declaration by more than 40 African Ministers.
We hosted 26 energy side events at COP 17 and the South African Renewables Initiative Declaration of Intent was also signed during COP 17.
The Grand Inga memorandum of understanding was signed in November 2011.
Seven bilateral agreements and declarations of intent covering areas of co- operation in capacity building, funding, technology and infrastructure development have been signed.
The Central Energy Fund group of companies has undergone significant restructuring.
The wind atlas, which accurately quantifies the wind energy resources in the country, has been launched.
Significant progress has been achieved with the development of the following pieces of legislation, namely the Independent System and Market Operator Bill, the Electricity Regulation Act, ERA, the National Energy Regulator Act, the Power Purchase Agreement, PPA, and the Gas Amendment Act.
Hon members, I am pleased to announce that we have spent 99,9% of our 2011- 12 allocated budget. [Applause.]
The total allocation for the 2012-13 financial year is R6,8 billion. Sir, R6,5 billion or 95% of this allocation has been earmarked for transfers: R3,1 billion has been earmarked for the Integrated National Electrification Programme to connect 150 000 and 10 000 households to the grid and nongrid systems respectively; R1 billion has been allocated for the Energy Efficiency and Demand Side Management Programme to accelerate the solar water heating programme; R1,5 billion is for the final instalment of the new multiproduct pipeline; and R554 million to the South African Nuclear Energy Corporation, Necsa, to continue with its central role as the anchor for nuclear energy, research, development and innovation.
The balance will be utilised for smaller projects and transfers to the state-owned entities reporting to the Minister of Energy, as follows: The South African National Energy Development Institute, Sanedi, receives about R50,1 million; the National Nuclear Regulator receives about R30,9 million; the Renewable Energy Fund subsidy scheme has been allocated about R40,4 million; and R307,27 million is for the operational budget, which is a 0,06% increase from the previous year.
One of the most astute sons of the continent of Africa, Thomas Sankara, said:
You cannot carry out fundamental change without a certain amount of madness. In this case, it comes from nonconformity, the courage to turn your back on the old formulas, the courage to invent the future.
The ANC, through the mandate of the 52nd National Conference and the 2009 Election Manifesto, enjoined its representatives in government to act in the spirit of what Sankara describes in this quote. The focus and budget of the Department of Energy are therefore geared to contributing to the overall programme of transformation, and indeed to what Sankara calls "to invent the future".
Geopolitical developments globally have once again demonstrated the need for South Africa to improve its energy security of supply. We are impacted on negatively by events that are taking place in other parts of the world, and we have seen how dependence on a few countries from one region can jeopardise our security of supply of energy. We have embarked upon a diversification strategy that will ensure that we reduce our vulnerability to the spectre of political upheavals.
We have also witnessed a roller coaster of fuel prices, the increases in which were caused mainly by these geopolitical upheavals and the associated exploitation of the situation by commodity traders. I believe that there is a need for stakeholders to begin to understand that these swings are not just affecting South Africa, but are impacting on the whole world. The move of crude oil from US$100 to US$120 per barrel happened in a short space of time. I continue to feel and share the pain of the motorist, but in particular the pain of the paraffin users and the farmer who produces the food that we eat.
A positive development is that we are currently witnessing a downward swing of the crude oil price, and I am pleased to announce that next month motorists will benefit from a substantial decrease in fuel prices in time for the June holiday driving season. [Applause.] I hope that those transport sector players that have increased their prices will take this decrease into consideration and act accordingly. Hon members, all of us must explain to our people that the petroleum products system is such that when there is a downward movement in the international market prices, that benefit is passed on to the motorist in the following month.
Recently, we have observed efforts to controversialise the fuel levy. Let us desist from spreading misinformation and mischief and use facts to educate and share knowledge with our people.
Another matter that requires our collective effort is the United States, US, and European Union, EU, sanctions on Iran and the impact thereof on the South African economy. Some have tried to force us into a confrontational position with the US, the EU and the Iranian government. In the interest of the South African economy, we have steadfastly resisted that. We have said before and state again that we will respond appropriately to this challenge in the best interests of our country and its people. The Cabinet task team remains seized with this matter, and is continuing engagements with the relevant governments, and we expect to come to finality on this matter soon.
As a result of the identified constraints throughout the liquid fuels supply chain, the department has embarked on a process of developing a liquid fuels infrastructure roadmap. One of the key objectives of this roadmap is to enable government to ensure that South Africa has access to reliable, affordable, clean, sufficient and sustainable sources of energy to meet the country's liquid fuel demand. In addition, in dealing with the supply challenges of refineries, we embarked on a process of conducting an audit of our refineries last year. The purpose of the audit was to assess the state of our refineries and to obtain an understanding of their current capacity. A preliminary investigation indicates that our refineries are experiencing reduced production levels, which is equally a threat to liquid fuels security of supply.
The 20-year liquid fuel infrastructure plan will form the basis for the implementation of the Presidential Infrastructure Co-ordinating Commission, PICC, strategic implementation project with regard to refinery upgrades and development, and we will make recommendations on the future of the refinery infrastructure in the country.
Work in this regard will be informed by the cost recovery mechanisms that we will be developing with the National Treasury.
As a further response to the global situation and domestic development imperatives, we have taken a decision to strengthen the Strategic Fuel Fund, SFF, a subsidiary of the Central Energy Fund. To this end a new board for the SFF with the requisite complement of skills will be appointed, and a new chief executive officer, CEO, will be appointed this year.
We intend to position the SFF to once again improve our strategic petroleum reserves and in that way enable the country to better respond to catastrophic global events that impact on the petroleum trade. A revised strategic stocks policy is under consideration by Cabinet and will be concluded soon.
Hon members, we are making steady progress with the development of the Integrated Energy Plan and by the end of the financial year will table the draft for Cabinet approval before embarking on further broader public and stakeholder consultations.
The Energy Planning Colloquium was held at the end of March this year and attended by subject matter experts in the academic field, industry, and various organisations and interest groups. While we obtained a wealth of constructive viewpoints and comments on our processes and approach, there was a call for more stakeholder consultations to provide input into the plan. In developing this plan we are taking a holistic approach to the problem of planning for future energy needs, and we seek to ensure that environmental and climate change issues, together with social development and economic growth issues, are all considered in a balanced manner. We will therefore continue to engage with various experts and stakeholders during the Integrated Energy Plan development process and we urge maximum participation from all interested parties.
On the regulatory framework, greater focus will be on compliance, particularly with fuel specifications. The department will embark on spot checks at all licensed facilities to verify that all petroleum products sold to motorists meet the required fuel specifications. This will be over and above the certification that is done by the oil companies.
We have also set ourselves the ambitious target of obtaining International Organisation for Standardisation, ISO, accreditation for the petroleum licensing process. This, we believe, will ensure greater consistency and predictability through rigorous documented processes and systems. It will reduce subjectivity completely and also ensure that scope for potential corrupt practices is eliminated. This is not a one-year undertaking, but there will be milestones for each year.
This financial year will be spent in training all petroleum licensing staff on the quality management system framework and ensuring that there is not a single process for which there is no corresponding standard operating procedure.
Ladies and gentlemen, the implementation of the Integrated Resource Plan, IRP, has commenced and a number of policies and strategies that address the mandate of energy provision and the need to reduce our dependence on coal have been initiated. The IRP proposes the development of new generation capacity in a way that optimises costs, promotes job creation and mitigates adverse climate change.
The flagship programme under the IRP is the Renewable Energy Independent Power Producer, the REIPP, bidding programme for the provision of 3 625 MW of capacity from independent power producers. The process has lived up to expectations by attracting foreign direct investment into South Africa worth about R100 billion over a period of 12 months.
The successful bidders are expected to enter into a contractual agreement with the department, referred to as the implementation agreement. This agreement is designed to govern the commitments made by the bidders in relation to the minimum number of jobs that they will create during the construction period, the local content procurement of some power plant components, and the change in control and black economic empowerment, BEE, equity. The procurement process is designed in such a way that the bidders will not be able to finalise their deals without signing this critical component of the project agreements. We are confident that this will boost the energy sector employment growth potential.
We are now set to initiate a fresh bidding round for the other technologies, such as cogeneration from biomass, including sugar and paper, biogas, landfill gas, and small hydro. The selected preferred bidders for the Renewable Energy Independent Power Producer, REIPP, under Window 2 will be announced on Monday, 21 May 2012.
During the course of this year we will introduce the small power or less than 5 MW capacity bidding round, whilst continuing with the renewable energy programme as a rolling programme, where subsequent windows are initiated subject to availability of megawatts left from the previous windows.
In response to the injunctions of the green economy and localisation accords, the target for local content has progressively been increased for Window 2, to a target of 60% in respect of certain technologies, whilst the minimum of 40% South African equity participation remains the same. I would like to challenge project developers to take advantage of this certainty in the project pipeline to bring their factories to South Africa to manufacture locally the components that constitute the various systems, and to develop local skills. More details on this process will be dealt with by Minister Davies.
Over and above the Renewable Energy Independent Power Producer, REIPP, procurement, we have also issued a request for information for projects that are available from other technologies, such as gas, imported hydro, cogeneration and coal. Once we have received the information about prospective projects, we will initiate a procurement process to meet the IRP requirements based on these projects. Hon Chairperson, nuclear energy is going to play a critical role in the IRP implementation process, and it is for that reason that the National Nuclear Energy Executive Co-ordination Committee was established last year as the authority for decision-making, monitoring, and ensuring general oversight of the Nuclear Energy Expansion Programme.
The success and deployment of nuclear power requires public acceptance, and public education is the most important topic surrounding nuclear energy.
Concerns regarding the safety of nuclear energy in the light of the recent Fukushima incident will be factored into the South African approach to ensure that proper safety measures are put in place, and that they are overseen by the appropriate expert authorities. We remind hon members that, as a member of the International Atomic Energy Agency, we in South Africa are obliged to comply with the relevant guidelines and safeguards on nuclear plants and we are therefore evaluating our processes against the agency's developed milestones for new plants.
We estimate that the total power capacity extension under the IRP will cost in excess of R4 trillion in the period up to 2030, including the new power plants, plus the transmission and distribution infrastructure.
Whilst the primary objective of the IRP capital programme is energy security, we have also prioritised considerations like reducing water intensity, reducing greenhouse gas emissions, implementing an affordable tariff trajectory, and localisation of technologies. As we do this, we must ensure that tariffs do not increase beyond what is affordable to the economy and the household consumer.
We are all aware that the multiyear price determination is due to start this year. In the last round Nersa approved increases of 25%, 25% and 16% for 2010, 2011 and 2012 respectively. The electricity pricing policy which Nersa is obliged to apply in tariff determination provides that the wholesale tariff must rise to the long-run marginal cost within 5 years of 2008 in order to fund the capital investment requirements. This has resulted in a steep rise in the electricity tariffs.
Some of the risks associated with high tariff increases are macroeconomic in nature, such as high administered prices that drive inflation upwards and the fact that the gross domestic product will slow down as input costs increase. There is also the reality of the sociopolitical dynamic that these interventions may cause, especially with regard to hardship, which will increase, with the poor bearing the biggest brunt.
The other side of the risk equation is that without appropriate investment and funding of the electricity infrastructure, inadequate capacity will cause blackouts and act as an impediment to economic growth and development. It is therefore critical that we strike a balance between these competing considerations.
An interdepartmental team is considering the best approach for determining the next round of electricity tariff increases for Eskom, due to take effect from April 2013. We share the concern of the President, as raised in the state of the nation address earlier this year, and our response will be informed by the need to develop an approach for defining a long-term electricity tariff trajectory.
The Integrated National Electrification Programme continues to be the backbone of our electricity delivery programme for communities who are underserved in regard to the grid and off-grid connections. Deputy Minister Thomson will expand more on this programme.
This year we will develop a new electrification roadmap which emanates from our engagement with stakeholders during the Electrification Indaba in March this year. This is intended to accelerate our responsiveness, particularly given the declaration by the United Nations of 2012 as the International Year of Sustainable Energy for All, with access to energy for all.
As a further contribution to sustainable energy access we intend to build three additional integrated energy centres, IECs, in Mbizana, Ulundi and Maluti-a-Phofung.
Last year we announced our intention to confront the problem we faced with copper theft. We indicated that the direct financial losses amounted to R100 million annually, apart from the inconvenience of power supply disruptions. We noted that even the flagship Gautrain transport and telecommunication systems were not insulated from this menace, and we decided to take action.
With the collaboration of the criminal justice system, a number of interventions have been concluded. I am pleased to announce that copper theft will be treated with the seriousness that is necessary to stop the izinyoka [cable thieves] once and for all. [Applause.]
The South African Police Service, SAPS, has gazetted an amendment to the Second-Hand Goods Act, and this is the beginning of a process of tightening the penal regime in regard to copper theft. I want to take this opportunity to thank Minister Mthethwa and the SAPS for their collaboration and support on this critical challenge.
Last year we entered into a pact with labour, civil society and business constituencies on numerous matters that would put us on a path that is aligned with our green economy aspirations. I am referring to the local procurement, energy efficiency and skills development accords that we concluded under the auspices of the New Growth Path's Social Partners Forum. It is our intention to make these agreements have practical meaning in relation to the programmes that we implement, especially with regard to the IRP implementation plan and the biofuels strategy.
Whilst we are recording good progress with the implementation of the solar water heating programme, I also need to indicate that the majority of these systems, particularly the low-pressure type that we install in the Reconstruction and Development Programme and the medium-income residential sectors, are imported. This is clearly untenable, and the time has arrived for us to intervene if we are to make a difference in creating local job opportunities. I have therefore decided that from this year the solar water heater programme will work on a different model. In essence, only those suppliers who commit to localising their product will be able to participate in the government-funded subsidy programme. [Applause.] We will be announcing the details of this new approach soon.
Last year we committed ourselves to achieving 1 TW hour of energy savings from a combination of energy efficiency and demand side management interventions, including the solar water heating programme and others. Eskom indicates that savings of 1,471 TW hours have been achieved and we want to compliment and congratulate them for this. This excludes the municipal lighting retrofit programme, which still has to be verified through an independent measurement and verification protocol. We need to intensify these efforts throughout South Africa so as to maximise the energy sector's contribution to sustainable development.
The repatriation of Safari-1 spent fuel of US origin was successfully completed through excellent collaboration between my department, the US Department of Energy, Necsa, the National Nuclear Regulator, NNR, and the security services. This collaboration has proved that working together we can do more to enhance nuclear security.
To this end, the NNR directed Eskom and Necsa to conduct a reassessment of their respective reactors in order to provide assurance that the design parameters, operations and beyond design basis of the plants are sufficiently robust to withstand all types of major external events.
The NNR review of the reassessment reports provided by Necsa and Eskom on their safety considerations following the Fukushima nuclear accident in Japan has resulted in the following conclusions. Nuclear installations have been adequately designed, and are maintained and operated to withstand all the external events that were considered in the original design basis; nothing has been found to warrant curtailing their operation or to question the design margins of these facilities; the safety reassessment identified a number of potential improvements to further reduce risk beyond the design requirements, and Eskom and Necsa will be required to implement such improvements; and the NNR has identified five areas for improvement of the regulatory standards and regulatory practices. These areas for improvement will be addressed as part of the current review of the regulatory framework.
Our resolve to fundamentally transform society should be steeped in "nonconformity, the courage to turn your back on the old formulas, the courage to invent the future", as Sankara directed. In the Department of Energy, these progressive thoughts by an African son will be our war cry for the period going forward. We have been bold enough to turn our backs on old formulas and we will do our part to invent a unique and prosperous South Africa and African culture. Thank you. [Applause.]